<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1996
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20179
RECYCLING INDUSTRIES, INC.
------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-1103445
- --------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
384 INVERNESS DRIVE SOUTH, SUITE 211
ENGLEWOOD, COLORADO 80112
- ------------------------------------------------ ---------------
(Mailing Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (303) 790-7372
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK,
$.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the close of the period covered by this Report.
Number of Shares Outstanding As Of
Class March 31, 1996
- ---------------------------------- ----------------------------------
Common Stock, $.001 Par Value 10,055,193
<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS*
Consolidated Balance Sheets - March 31, 1996 (Unaudited)
and September 30, 1995 1-2
Consolidated Statements of Operations (Unaudited) for the three
months and six months ended March 31, 1996 and 1995 3
Consolidated Statement of Stockholders' Equity
through March 31, 1996 (Unaudited) 4
Consolidated Statements of Cash Flows (Unaudited) for the three 5
and six months ended March 31, 1996 and 1995
Notes to the Consolidated Financial Statements 6-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II -- OTHER INFORMATION
Items 1 through 6
Signatures
* The accompanying interim financial statements have not been audited by an
independent certified public accountant, and are so noted as "Unaudited"
where applicable. Only those statements corresponding to a fiscal year-end
(September 30) are audited.
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS
(Substantially Pledged)
<TABLE>
<CAPTION>
MARCH 31, 1996 SEPTEMBER 30, 1995
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,240,000 $ 184,000
Trade accounts receivable, pledged, less allowance for
doubtful accounts of $10,000 and $15,000 2,149,000 1,026,000
Accounts receivable, related party 95,000 223,000
Inventories 2,076,000 497,000
Prepaid expenses 353,000 137,000
Other 216,000 -
Deferred income taxes 500,000 -
-------------- ------------
Total Current Assets 6,629,000 2,067,000
PROPERTY, PLANT AND EQUIPMENT, net 8,421,000 6,686,000
DEFERRED INCOME TAXES, net 741,000 800,000
OTHER ASSETS 4,147,000 744,000
-------------- ------------
TOTAL ASSETS $19,938,000 $10,297,000
-------------- ------------
-------------- ------------
</TABLE>
-1-
<PAGE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, 1996 SEPTEMBER 30, 1995
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $ - $ 61,000
Notes payable - related parties 1,927,000 -
Trade accounts payable 1,235,000 655,000
Trade accounts payable - related parties 140,000 73,000
Accrued liabilities:
Interest 13,000 22,000
Interest - related party 17,000 8,000
Payroll and other 267,000 107,000
Income taxes payable 86,000 86,000
Due to factor, related party 137,000 197,000
Current portion of long-term debt 94,000 227,000
Current portion of long-term debt,
related parties 2,294,000 218,000
Current portion of obligation,
under capital lease 314,000 37,000
--------------- --------------
Total Current Liabilities 6,524,000 1,691,000
--------------- --------------
LONG-TERM DEBT:
Long-term debt, net of current portion 124,000 132,000
Long-term debt - related parties, net
of current portion 945,000 1,979,000
Obligation under capital lease, net
of current portion 1,452,000 41,000
--------------- --------------
Total Long-Term Debt 2,521,000 2,152,000
--------------- --------------
Total Liabilities 9,045,000 3,843,000
--------------- --------------
COMMITMENTS & CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000
shares authorized:
Series A 13,000 shares
issued and outstanding 1,312,000 1,312,000
Series B -0- shares and 300,000
shares issued and outstanding - 450,000
Common stock, $.001 par value,
50,000,000 shares authorized:
10,055,193 and 8,395,785
shares issued and outstanding 10,000 8,000
Additional paid-in capital 17,909,000 13,120,000
Accumulated (deficit) (8,338,000) (8,436,000)
--------------- --------------
Total Stockholders' Equity 10,893,000 6,454,000
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,938,000 $10,297,000
--------------- --------------
--------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-2-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------------- -----------------------------------
1996 1995 1996 1995
-------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
<C>
REVENUES:
Sales $ 7,277,000 $ 3,688,000 $ 10,735,000 $ 7,090,000
Other income 28,000 12,000 28,000 27,000
--------------- --------------- --------------- ---------------
Total Revenues 7,305,000 3,700,000 10,763,000 7,117,000
--------------- --------------- --------------- ---------------
COST AND EXPENSES:
Cost of sales 5,297,000 2,108,000 8,712,000 4,563,000
Cost of sales-related party 640,000 760,000 640,000 760,000
Personnel 431,000 117,000 862,000 263,000
Professional services 121,000 174,000 264,000 290,000
Travel 43,000 12,000 60,000 19,000
Occupancy 14,000 (16,000) 28,000 25,000
Depreciation and amortization 70,000 56,000 101,000 124,000
Interest 149,000 119,000 245,000 198,000
Other general and administrative 118,000 45,000 238,000 190,000
--------------- --------------- --------------- ---------------
Total Costs and Expenses 6,883,000 3,375,000 11,150,000 6,432,000
--------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE
EXTRAORDINARY GAIN 422,000 325,000 (387,000) 685,000
EXTRAORDINARY GAIN FROM
SETTLEMENT OF DEBTS 48,000 161,000 48,000 222,000
INCOME (LOSS) BEFORE
INCOME TAXES (BENEFIT) 470,000 486,000 (339,000) 907,000
INCOME TAXES (BENEFIT) 4,000 - (437,000) -
NET INCOME (LOSS) $ 466,000 $ 486,000 $ 98,000 $ 907,000
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) PER SHARE
Before Extraordinary Item $ 0.04 $ 0.09 $ 0.01 $ 0.20
Extraordinary Item 0.01 0.04 - 0.06
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) PER SHARE $ 0.05 $ 0.13 $ 0.01 $ 0.26
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Weighted Average Shares Outstanding 10,341,396 3,675,423 9,773,913 3,495,306
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-3-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995
AND THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balances, September 30, 1992 - $ - 2,367,728 $ 3,000 $ 5,905,000)
Common stock issued
for services - - 20,000 - 149,000
Contribution of services - - - - 120,000
Dilution of predecessor cost
adjustment property option - - - - 444,000
Net (loss) - - - - -
------------- ------------- ------------ ------------- -------------
Balances, September 30, 1993 - - 2,387,728 3,000 6,618,000)
Preferred stock issued for debt 591,333 887,000 - - -
Preferred stock issued for
acquisition of NRI 38,000 3,612,000 - - -
Common stock issued for cash - - 30,000 - 56,000
Common stock issued
for services - - 39,600 - 242,000
Common stock issued for debt - - 548,376 - 1,351,000
Contribution to capital - - - - 2,000
Conversion of accrued salary - - - - -
Net (loss) - - - - -
------------- ------------- ------------- ------------- -------------
Balances, September 30, 1994 629,333 4,499,000 3,005,704 3,000 8,269,000
Redemption of preferred stock
Series A (25,000) (2,300,000) - - -
Redemption of preferred stock
Series B and other equity for
Option to CEO (291,333) (437,000) - - -
Common stock issued for
acquisition of MRI - - 120,000 - 1,200,000
Common stock issued during
private offering, net of offering
costs of $590,000 - - 3,746,400 4,000 2,778,000
Common stock issued to
retire debt - - 166,666 - 150,000
Common stock issued for
renegotiation of payment terms
for a stockholder loan - - 10,000 - -
Common stock issued
for services - - 10,000 - 25,000
Common stock issued for
interest on bridge loans - - 17,351 - 16,000
Common stock issued on
exercise of option to CEO - - 1,319,445 1,000 682,000
Common stock rounding due
to stock split - - 219 - -
Net income - - - - -
------------- ------------- ------------- ------------- -------------
Balances, September 30, 1995 313,000 1,762,000 8,395,785 8,000 13,120,000
Common stock issued for
acquisition of Anglo (unaudited) - - 227,693 - 925,000
Conversion of preferred stock
series B (unaudited) (300,000) (450,000) 12,000 - 450,000
Common stock issued in
private offering, net of
offering costs of $633,000 (unaudited) - - 1,040,636 1,000 2,227,000
Conversion of bridge loans (unaudited) - - 323,523 1,000 1,137,000
Common stock issued for cash (unaudited) - - 55,556 - 50,000
Net income for the period
(unaudited) - - - - -
------------- ------------- ------------- ------------- -------------
Balances, March 31, 1996 13,000 $ 1,312,000 10,055,193 $ 10,000 $ 17,909,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
(unaudited)
<CAPTION>
OTHER
OPTION EQUITY ACCUMULATED
TO CEO SECURITY (DEFICIT) TOTAL
-------------- -------------- -------------- --------------
Balances, September 30, 1992 $ - $ - $ (6,844,000) $ (936,000)
Common stock issued
for services - - - 149,000
Contribution of services - - - 120,000
Dilution of predecessor cost
adjustment property option - - - 444,000
Net (loss) - - (2,483,000) (2,483,000)
------------- ------------- ------------- -------------
Balances, September 30, 1993 - - (9,327,000) (2,706,000)
Preferred stock issued for debt - - - 887,000
Preferred stock issued for
acquisition of NRI - - - 3,612,000
Common stock issued for cash - - - 56,000
Common stock issued
for services - - - 242,000
Common stock issued for debt - - - 1,351,000
Contribution to capital - - - 2,000
Conversion of accrued salary - 246,000 - 246,000
Net (loss) - - (924,000) (924,000)
------------- ------------- ------------- -------------
Balances, September 30, 1994 - 246,000 (10,251,000) 2,766,000
Redemption of preferred stock
Series A - - - (2,300,000)
Redemption of preferred stock
Series B and other equity for
Option to CEO 683,000 (246,000) - -
Common stock issued for
acquisition of MRI - - - 1,200,000
Common stock issued during
private offering, net of offering
costs of $590,000 - - - 2,782,000
Common stock issued to
retire debt - - - 150,000
Common stock issued for
renegotiation of payment terms
for a stockholder loan - - - -
Common stock issued
for services - - - 25,000
Common stock issued for
interest on bridge loans - - - 16,000
Common stock issued on
exercise of option to CEO (683,000) - - -
Common stock rounding due
to stock split - - - -
Net income - - 1,815,000 1,815,000
------------- ------------- ------------- -------------
Balances, September 30, 1995 - - (8,436,000) 6,454,000
Common stock issued for
acquisition of Anglo (unaudited) - - - 925,000
Conversion of preferred stock
series B (unaudited) - - - -
Common stock issued in
private offering, net of
offering costs of $633,000 (unaudited) - - - 2,228,000
Conversion of bridge loans (unaudited) - - - 1,138,000
Common stock issued for cash (unaudited - - - 50,000
Net income for the period
(unaudited) - - 98,000 98,000
------------- ------------- ------------- -------------
Balances, March 31, 1996 $ - $ - $ (8,338,000) $ 10,893,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-4-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
-------------------------------- -------------------------------
March 31, 1996 March 31, 1995 March 31, 1996 March 31, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES: (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net income $ 466,000 $ 486,000 $ 98,000 $ 907,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 277,000 228,000 479,000 454,000
Extraordinary gain from settlement of debts (48,000) (161,000) (48,000) (222,000)
Deferred income taxes -- -- (441,000) --
Changes in assets and liabilities:
Trade accounts receivable (1,139,000) (77,000) (1,123,000) (252,000)
Inventories (80,000) (30,000) (213,000) 52,000
Prepaid expenses (91,000) 16,000 (91,000) 5,000
Other current assets (200,000) 23,000 (216,000) 32,000
Accounts payable 581,000 174,000 647,000 (6,000)
Accrued liabilities 228,000 (102,000) 160,000 (62,000)
------------- ------------ ------------ -----------
Net Cash Provided (Used)
by Operating Activities (6,000) 557,000 (748,000) 908,000
------------- ------------ ------------ -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Additions to equipment (252,000) (366,000) (302,000) (406,000)
Receivables - related party (33,000) (113,000) 128,000 (81,000)
Additions to acquisition costs and goodwill (377,000) 18,000 (604,000) (56,000)
Non-compete agreement -- -- (200,000) --
Net Cash (Used) in Investing Activities (662,000) (461,000) (978,000) (543,000)
------------- ------------ ------------ -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Proceeds from borrowings - related parties 1,593,000 -- 1,593,000 --
Proceeds from other borrowings (1,389,000) (150,000) 20,000 --
Principal payments on borrowings (34,000) (2,128,000) (401,000) (2,298,000)
Principal payments on borrowings - related parties (411,000) (49,000) (411,000)
(281,000)
Principal payments on capital lease 20,000 -- (112,000) --
Proceeds from factor 1,882,000 2,029,000 3,934,000 3,364,000
Payments to factor (2,083,000) (2,165,000) (3,994,000) (3,494,000)
Proceeds from issuance of common stock 2,278,000 2,757,000 2,278,000 2,782,000
Deferred offering costs (15,000) (314,000) (125,000) (314,000)
------------- ------------ ------------ -----------
Net Cash Provided (Used)
by Financing Activities 1,841,000 (20,000) 2,782,000 (241,000)
------------- ------------ ------------ -----------
Increase in Cash 1,173,000 76,000 1,056,000 124,000
CASH, beginning of period 67,000 163,000 184,000 115,000
------------- ------------ ------------ -----------
CASH, end of period $ 1,240,000 $ 239,000 $ 1,240,000 $ 239,000
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-5-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL INFORMATION:
I. The financial statements included herein have been prepared by the
Company without audit except the September 30, 1995, balance sheet
which was audited by the Company's independent public accountants.
The statements have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission and reflect all adjustments,
consisting of only normal recurring accruals, which are, in the
opinion of management, necessary for a fair statement of the results
of operations for the periods shown. These statements do not include
all information required by generally accepted accounting principles to
be included in a full set of financial statements. These financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's latest report on Form
10-K, dated September 30, 1995.
II. On September 13, 1995, the common stock of the Company was approved for
listing on the Nasdaq SmallCap Market under the trading symbol "RECY".
III. On December 11, 1995, the Company acquired substantially all of the
assets and the business of Anglo Metal, Inc. dba Anglo Iron & Metal
(Anglo). The assets acquired from Anglo consisted of a heavy duty
automotive shredder, inventories, metal shearing equipment, balers,
heavy equipment, tools and rolling stock used in the business of
recycling ferrous and non-ferrous metals. The Company also purchased
from Anglo certain real property, buildings and leasehold improvements
used in the metal recycling business.
The purchase price for Anglo was $6,065,000 comprised of: $2,079,000 in
cash; $1,865,000 note which is to be paid in ten monthly installments
of $186,500 beginning in February 1996; a $446,000 secured promissory
note payable in 60 consecutive monthly installments of $9,000,
including interest; a $750,000 unsecured note payable in 72 equal
consecutive monthly installments of $10,400; and 227,693 shares of
Common Stock valued at $925,000.
Of the cash paid at the closing of the acquisition, $1,800,000 was
obtained through a sale-leaseback transaction with Ally Capital
Corporation, collateralized by all of Anglo's machinery and
equipment, accounts receivable and inventories, which has been recorded
as a capital lease.
The terms of the sale-leaseback provide for 60 consecutive monthly lease
payments of $41,000 with a bargain purchase option at the end of the
lease term. The lease contained numerous covenants for maintaining
certain financial ratios and earnings levels. The remaining $279,000
paid at closing was obtained from the operating cash reserves and
working capital of the Company.
The Company signed a consulting and non-competition agreement with the
president of Anglo. The term of the non-compete portion is for six years
and is valued at $1,000,000 which will be amortized over the term of the
agreement using the straight line method. The consulting portion is for
a term of six months and is payable $5,000 per month.
RII also entered into a sublease agreement with Anglo for three yard
facilities for $2,500 a month through December 10, 2005.
The real property acquired from Anglo and the Common Stock issued by the
Company have been placed in escrow to provide for the remediation of
environmental contamination related to the operations of Anglo prior to
the acquisition.
-6-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
------------------------------------------
The purchase price of Anglo has been allocated as follows:
Equipment under capital lease $ 1,800,000
Contract to acquire land and buildings 70,000
Covenant not to compete 1,000,000
Inventories 1,365,000
Purchase price in excess of net assets acquired 1,830,000
--------------
Total purchase price 6,065,000
Notes payable (3,061,000)
Common Stock (925,000)
--------------
Cash paid at closing 2,079,000
Capital lease obligation (1,800,000)
--------------
Cash paid from operating capital $ 279,000
--------------
--------------
The unaudited pro forma summary financial statement which follows, has been
prepared assuming that the acquisition of Anglo occurred at the
beginning of the period for pro forma statement of operations.
-7-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
------------------------------------------
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Recycling Pro Forma
Industries Anglo Pro Forma March 31,
Inc. Iron & Metal Adjustments 1996
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 10,763,000 $ 7,268,000 $ (4,460,000) $ 13,571,000
Costs and expenses 11,150,000 6,595,000 (4,205,000) 13,540,000
------------ -------------- ------------- -------------
Income (loss) before
income taxes (387,000) 673,000 (255,000) 31,000
Provision (benefit) from
income taxes (437,000) 229,000 (87,000) (295,000)
------------ -------------- ------------- -------------
Income (loss) from continuing
operations, net of income
taxes $ 50,000 $ 444,000 $ (168,000) $ $326,000
------------ -------------- ------------- -------------
------------ -------------- ------------- -------------
Net income (loss) after
extraordinary item and
income taxes $ 98,000 $ 444,000 $ (168,000) $ 374,000
------------ -------------- ------------- -------------
------------ -------------- ------------- -------------
Income per common share:
Before extraordinary gain $ .03
Extraordinary gain $ .01
-------------
Net income per common share $ .04
-------------
-------------
</TABLE>
Prior to acquiring Anglo, the Company commissioned extensive environmental
studies on the Anglo sites. These environmental investigations resulted
in a determination that certain isolated areas of the facilities may
contain environmental contaminates. As a result, the Company established
an Environmental Escrow to cover the cost of potential clean up of these
areas. Additionally, during the Escrow Period, the Company will engage an
environmental engineer to determine the level of contamination on the real
property. The location of any contamination will be identified by a
survey and the legal description of the real property will be revised to
provide that the Company will not purchase any contaminated portion of the
real property.
If prior to the termination of the Escrow Period, the location of the
contamination cannot be determined or if the Company determines that there
is extensive contamination of the real property, all documents held in
escrow shall be destroyed and the Company shall enter into a lease
agreement for the real property, which lease shall be retroactive to the
Closing Date. The lease payments under such lease agreement shall be equal
to those that would otherwise have been due under the Secured Promissory
Note. Due to the escrow agreement, the real property has been recorded as
an intangible asset, Contract to Acquire Land.
-8-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IV. In December 1995 and January 1996, the Company borrowed $1,575,000 of
bridge financing represented by the notes payable - related parties with
interest at 10% per annum. Proceeds from the loans were used to finance
the Anglo acquisition and general corporate expenses. In January 1996,
principal of $1,125,000 and accrued interest of $13,000 were converted
into 323,523 shares of Common Stock. In connection with the bridge
financing, the lenders were issued warrants to purchase a total of 359,250
shares of Common Stock at $1.50 per share, exercisable through the end of
a three-year period commencing on the effective date of a registration
statement covering the underlying Common Stock. Principal and interest
related to the bridge loans, which were not converted into Common Stock,
are due in December, 1996 and January, 1997. If the Company defaults on
repayment of the loans, the notes are convertible to Common Stock at a
conversion price of the lesser of $2.00 or 50% of the average closing
price for the last 30 days after the default. First Equity Capital
Securities, Inc. received a finders fee of $79,000 in connection with the
bridge loans.
V. On January 31, 1996 and April 8, 1996, the Company completed a Private
Placement of an aggregate of 1,454,156 shares of Common Stock at $2.75 per
share and issued warrants to purchase up to 727,078 shares of Common Stock
at $7.50 per share. Of the $3,998,934 raised, $1,137,000 was raised
through the conversion of the bridge financing indebtedness discussed
above. The remaining $438,000 of principal of the bridge indebtedness plus
accrued interest will be repaid from the proceeds of the proposed public
offering, discussed in Note VII below. The proceeds from these private
placements were used to complete the acquisition of Mid-America Shredding,
Inc., discussed in Note VI below and for general working capital purposes.
VI. On April 15, 1996, the Company acquired substantially all of the assets
(excluding cash and accounts receivable) of Mid-America Shredding, Inc.
The assets acquired consist of real property, buildings, a heavy duty
automotive shredder mill, a wire chopping plant and heavy equipment and
tools used in the business of recycling ferrous and non-ferrous metals.
The purchase price totaled $1,925,000, settled through the assumption of
outstanding bank debt of $1,210,000, $660,000 cash paid at closing and
$55,000 note, payable over eight months. The purchase price is allocated
as follows:
Inventories $ 55,000
Land 310,000
Building and improvements 560,000
Machinery and equipment 1,000,000
----------
$1,925,000
----------
----------
The unaudited pro forma summary financial statements which follow have been
prepared assuming that the acquisitions of Anglo and Mid-America occurred at the
beginning of the period for pro forma statement of operations.
-9-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
ASSETS
RECYCLING PRO FORMA
INDUSTRIES PRO FORMA MARCH 31,
INC. MID-AMERICA ADJUSTMENT 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets $ 6,629,000 $ 161,000 $(106,000) $ 6,684,000
Other assets 13,309,000 2,823,000 (953,000) 15,179,000
----------- ----------- ----------- -----------
$19,938,000 $ 2,984,000 $(1,059,000) $21,863,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities $ 6,524,000 $ 1,519,000 $(1,218,000) $ 6,825,000
Long-term debt 2,521,000 2,000 1,622,000 4,145,000
Stockholders' equity 10,893,000 1,463,000 (1,463,000) 10,893,000
----------- ----------- ----------- -----------
$19,938,000 $ 2,984,000 $(1,059,000) $21,863,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
RECYCLING PRO FORMA
INDUSTRIES ANGLO PRO FORMA MARCH 31,
INC. IRON & METAL MID-AMERICA ADJUSTMENTS 1996
----------- ------------ ----------- ----------- -----------
Revenues $10,763,000 $ 7,268,000 $ 1,170,000 $(4,460,000) $14,741,000
Costs and expenses 11,150,000 6,595,000 1,370,000 (4,244,000) 14,871,000
----------- ------------ ----------- ----------- -----------
Income (loss) before
income taxes (387,000) 673,000 (200,000) (216,000) (130,000)
Provision (benefit) from
income taxes (437,000) 229,000 - (150,000) (358,000)
----------- ------------ ----------- ----------- -----------
Income (loss) from continuing
operations, net of income
taxes $ 50,000 $ 444,000 $ (200,000) $ (66,000) $ 228,000
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
Net income (loss) after
extraordinary item and
income taxes $ 98,000 $ 444,000 $ (200,000) $ (66,000) $ 276,000
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
Income per common share:
Before extraordinary gain $ .02
Extraordinary gain .01
-----------
Net income per common share $ .03
-----------
-----------
</TABLE>
-10-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VII. On March 27, 1996, the Company entered into a letter of intent with an
underwriter to sell 4,400,000 shares of the Company's Common Stock in a
public offering. Upon a registration statement being declared effective,
the 4,400,000 shares would be sold along with 492,448 shares which would
also be sold by certain securityholders.
VIII. In April 1996, the Company reached agreement for the purchase of the
stock of Weissman Iron and Metal for cash of $12,400,000, subject to
adjustment at closing. Weissman operates in the business of recycling
ferrous and non-ferrous metals in and around Waterloo, Iowa. The
purchase price is anticipated to be funded through a combination of a
public offering of the Company's securities and bank debt.
IX. In April 1996, the Company entered into a letter of intent for a
$10,000,000 to $11,000,000 financing agreement. Advances would be
subject to certain asset eligibility computations and interest would be
at the Bank of America Reference Rate plus 2% except for the over advance
facility which would be plus 3%. The agreement would be collateralized
by a first security interest on all of the Company's assets. Closing of
the financing agreement is conditional upon completion of the lender due
diligence including, among other things, appraisals, documentation and
certain financial requirements.
X. For presentation purposes, the Statement of Operations for the six months
ended March 31, 1995, has been revised to reflect line item consistency
with the Statement of Operations provided in the September 30, 1995, 10-K.
XI. Inventories as of March 31, 1996 and September 30, 1995 consists of the
following:
MARCH 31, 1996 SEPTEMBER 30, 1995
-------------- ------------------
(UNAUDITED)
Raw materials $ 1,768,000 $ 350,000
Finished goods 308,000 147,000
-------------- ------------------
$ 2,076,000 $ 497,000
-------------- ------------------
-------------- ------------------
XII. Property, plant and equipment as of March 31, 1996
and September 30, 1995 consists of the following:
MARCH 31, 1996 SEPTEMBER 30, 1995
-------------- ------------------
(UNAUDITED)
Land $ 1,712,000 $ 1,640,000
Building and improvements 369,000 365,000
Heavy machinery and equipment 1,551,000 1,472,000
Auto shredder mill 3,180,000 3,161,000
Transportation equipment 799,000 679,000
Office equipment 131,000 121,000
Assets under capital lease 1,800,000 -
-------------- ------------------
Total 9,542,000 7,438,000
Less accumulated depreciation
and amortization (1,121,000) (752,000)
-------------- ------------------
Total $ 8,421,000 $ 6,686,000
-------------- ------------------
-------------- ------------------
-11-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XIII. Other assets consists of the following at:
MARCH 31, 1996 SEPTEMBER 30, 1995
-------------- ------------------
(UNAUDITED)
Acquisition costs $ 200,000 $ -
Goodwill, net of accumulated 2,544,000 188,000
amortization of $40,000 and
$29,000
Non-compete agreement,
net of accumulated
amortization of $56,000 944,000 -
Investment in affiliate,
at cost 277,000 277,000
Engineering plans, net of
accumulated amortization
of $930,000 and $899,000 157,000 188,000
Other assets 25,000 91,000
-------------- ------------------
$4,147,000 $744,000
-------------- ------------------
-------------- ------------------
XIV. During the quarter ended March 31, 1996, management determined that the
net operating losses generated from prior years, in the amount of
$7,200,000 is more likely than not to be used in the near future due to
taxable income estimated to be generated by NRI, Anglo and Mid-America.
Therefore an additional net deferred tax asset of $441,000 has been
recorded. Net operating loss carryovers available for the future through
the year 2009 are $7,200,000.
-12-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XV. Supplemental information to statement of cash flows for noncash investing
and financing activities:
SIX MONTHS ENDED
MARCH 31,
---------------------------------
1996 1995
----------- ------------
(UNAUDITED) (UNAUDITED)
Cash paid for interest $ 194,000 $ -
----------- ------------
----------- ------------
Stock issued for conversion
of bridge financing $ 1,137,000 $ 150,000
----------- ------------
----------- ------------
Acquisition of subsidiaries
for stock $ 925,000 $ 1,200,000
----------- ------------
----------- ------------
Purchase of equipment for
notes payable $ 25,000 $ 35,000
----------- ------------
----------- ------------
Restructure of preferred
stock to debt $ - $ 2,300,000
----------- ------------
----------- ------------
Acquisition of equipment
under capital lease $ - $ 113,000
----------- ------------
----------- ------------
Contract to acquire land
and building acquired
for note payable $ 446,000 $ -
----------- ------------
----------- ------------
Acquisition of Anglo
inventory for note payable $ 1,366,000 $ -
----------- ------------
----------- ------------
Capital lease obligation
incurred to finance
Anglo acquisition $ 1,800,000 $ -
----------- ------------
----------- ------------
Intangible acquired for a
note payable $ 750,000 $ -
----------- ------------
----------- ------------
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto included elsewhere
herein.
OVERVIEW
The Company is a full-service metals recycler engaged in the collection and
processing of various ferrous and non-ferrous metals for resale to domestic and
foreign steel producers and other metal producers and processors. Prior to May
1994, the Company was a development stage enterprise engaged in the development
of the technology related to the recycling of municipal solid waste (the "MSW
Technology").
The Company's current operations commenced in May 1994 with the acquisition of
its Nevada metals recycling facility. Since that time, the Company has
experienced significant growth from the acquisition of other metals recycling
facilities. On June 30, 1995, the Company acquired a 20% interest in a metals
recycling facility located in Georgia. On December 11, 1995, the Company
acquired its four southern Texas facilities. These acquisitions, except for the
20% ownership interest in the Georgia facility, are accounted for under the
purchase method of business combinations and, accordingly, the result of
operations for such acquired businesses are included in the Company's financial
statements only from the applicable date of acquisition. As a result, the
Company's historical results of operations for the period presented are not
directly comparable.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The results of operations for the three months ended March 31, 1996 include the
effects of the acquisition of the Company's southern Texas facilities for the
entire period whereas the March 31, 1995 results reflect only the operations of
the Nevada facility. The key operating results for each of the three month
periods are summarized as follows:
REVENUES. For the three months ended March 31, 1996, revenues increased $3.6
million, or 97.4%, to $7.3 million from $3.7 million for the three months ended
March 31, 1995. The increase in revenues was comprised of a $4.2 million
increase attributable to higher sales volume offset by a $626,000 decrease
attributable to lower average selling prices. The increase in revenues is
primarily the result of the acquisition of the Company's southern Texas
facilities on December 11, 1995. The operations of the southern Texas
facilities generated $3.9 million in revenues during the three months ended
March 31, 1996. Revenues for the Nevada facility declined 8.3% to $3.4 million
for the three months ended March 31, 1996 from $3.7 million for the three months
ended March 31, 1995.
-14-
<PAGE>
Ferrous scrap revenues increased $3.3 million, or 181.1%, to $5.1 million for
the three months ended March 31, 1996, from $1.8 million for the three months
ended March 31, 1995. Total tons shipped increased to 38,300 tons for the three
months ended March 31, 1996 from 14,800 tons for the three months ended March
31, 1995. The average selling price rose approximately $2 per ton to $124 per
ton for the three months ended March 31, 1996. Non-ferrous scrap revenues rose
approximately $612,000, or 40.7%, to $2.1 million reflecting the acquisition of
the southern Texas facilities. Total shipments for non-ferrous materials
increased to 2.0 million pounds to a total of 4.3 million pounds, which was
partially offset by a decrease in average non-ferrous selling prices from $.65
to $.48 per pound. Paper sales decreased approximately $280,000, or 72.5%, for
the three months ended March 31, 1996 as average sales prices and volumes
declined relative to the comparable period in 1995.
COST OF SALES. For the three month period ended March 31, 1996, cost of sales
increased $3.0 million to $5.9 million from $2.9 million for the three months
ended March 31, 1995, and increased as a percentage of revenues to 81.3% from
77.5%. This increase in cost of sales was primarily due to the increased sales
volume related to the acquisition of the Company's southern Texas facilities.
Of the increase in cost of sales, approximately $2.8 million was related to the
operations of the southern Texas facilities and $268,000 was related to the
increased volume at the Nevada facility. The increase in cost of sales as a
percentage of revenue was driven by decreased sales prices without corresponding
decreases in raw materials costs beginning in the quarter ended December 31,
1995. The Company has adjusted purchase prices for raw material over the course
of the quarter ended March 31, 1996 and believes that future margins will
reflect such changes. Overall gross profit improved by $536,000 to $1.4 million
for the three months ended March 31, 1996 compared to $832,000 for the three
months ended March 31, 1995.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased to $797,000, or 10.9% of revenues for the three months ended March 31,
1996, from $388,000, or 10.5% of revenues, for the three months ended March 31,
1995. Of this increase, $314,000 was the result of increased personnel, selling
and overhead costs related to acquired operations and to overhead added in
anticipation of additional growth, as well as an increase in other general and
administrative expenses of $73,000.
BENEFIT FROM INCOME TAXES. At March 31, 1996, the Company has recognized a net
deferred tax asset of $1.2 million, as management has determined that the net
operating loss carryforward was more likely than not to be used in the near
future due to the future taxable income to be generated by the Company's
southern Texas facilities. The net income before income taxes for the three
months ended March 31, 1996 decreased the net operating loss carryforward by
$470,000 providing approximately $7.2 million of net operating loss carryforward
available through 2009. No benefit from deferred income taxes was recognized
for the three months ended March 31, 1995.
INCOME FROM CONTINUING OPERATIONS, NET OF INCOME TAXES. Income from continuing
operations, net of income taxes improved to $418,000, or $.04 per share, for the
three months ended March 31, 1996 from $325,000, or $.08 per share, for the
three months ended March 31, 1995.
NET INCOME. For the three months ended March 31, 1996, the Company had net
income of $466,000, or $.05 per share, compared to net income of $486,000, or
$.13 per share, for the three months ended March 31, 1995.
-15-
<PAGE>
SIX MONTHS ENDED MARCH 31, 1996 AND 1995
The results of operations for the six months ended March 31, 1996 were impacted
by a number of factors, including delays in processed scrap shipments and lower
growth margins at the Company's Nevada facility. In addition, profitability was
negatively affected by transition expenses incurred in conjunction with the
acquisition of its southern Texas facilities on December 11, 1995.
REVENUES. Revenues increased $3.7 million, or 51.2%, to $10.8 million for
the six months ended March 31, 1996 from $7.1 million for the six months
ended March 31, 1995. The increase in revenues was comprised of a $4.3
million increase attributable to higher sales volume offset by a $590,000
decrease attributable to lower average selling prices. The increase in
revenues is primarily due to the acquisition of the Company's southern Texas
facilities on December 11, 1995. The operations of the southern Texas
facilities provided an additional $4.4 million of revenues, which were
partially offset by a $694,000 decrease in revenues from the operations of
the Nevada facility. The main factors responsible for the decline in
revenues at the Nevada facility were a decrease in non-ferrous scrap revenues
of $648,000 and a decrease in paper sales of $467,000, which were partially
offset by an increase in ferrous revenues of $421,000.
For the six months ended March 31, 1996, ferrous scrap revenues increased $3.7
million, or 109.0%, to $7,100,000 as shipments increased approximately 26,600
tons to 55,500 tons and the average selling price rose approximately $5 per ton
to $123 per ton. Non-ferrous scrap revenues increased approximately $412,000,
or 14.0%, to $3.4 million as shipments increased 2.1 million pounds to 6.7
million pounds. The increased non-ferrous scrap sales volume was partially
offset by a $.13 per pound decrease in average non-ferrous selling prices to
$.50 per pound. Total ferrous and non-ferrous scrap revenues rose to $10.5
million. Paper sales decreased approximately $467,000, or 66.5%, for the six
months ended March 31, 1996 as average sales prices and volumes declined
relative to the comparable period of 1995.
COST OF SALES. For the six months ended March 31, 1996, cost of sales increased
$4.1 million to $9.4 million from $5.3 million for the six months ended March
31, 1995, and increased as a percentage of revenues to 86.9% from 74.8%. This
increase in cost of sales was primarily due to the increase in sales volume of
the Company's newly acquired southern Texas facilities. Of the $4.1 million
increase in cost of sales, approximately $3.7 million was related to the
acquisition of the southern Texas facilities and $260,000 was related to the
increased volume at the Nevada facility. Gross profit decreased to $1.4 million
for the six months ended March 31, 1996 from $1.8 million for the six months
ended March 31, 1995. This decrease in gross profit was primarily due to the
decreases in ferrous and non-ferrous sales prices at the Company's Nevada
facility, without corresponding declines in raw material and direct production
costs.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased to $1.6 million, or 14.4% of revenues, for the six months ended March
31, 1996 from $911,000, or 12.8% of revenues, for the six months ended March 31,
1995. Of this increase, $599,000 resulted from additional personnel costs
associated with acquired operations and expenses incurred in connection with the
Company's increase in personnel in anticipation of additional acquisitions.
Included in this amount was $205,000 of incentive compensation paid to the
Company's Chief Executive Officer upon the consummation of the acquisition of
the Company's southern Texas facilities.
-16-
<PAGE>
INTEREST EXPENSE. Interest expense was $245,000 for the six months ended March
31, 1996 compared to $198,000 for the six months ended March 31, 1995. Interest
expense increased primarily due to higher average interest rates on the
Company's debt as well as additional debt incurred to finance the purchase of
the southern Texas facilities in December 1995.
BENEFIT FROM INCOME TAXES. For the six months ended March 31, 1996, the Company
recorded an increase to its net deferred tax asset of $441,000 which resulted in
a net deferred tax benefit of $437,000. As a result, at March 31, 1996, the
Company has recognized a net deferred tax asset of $1.2 million, as management
has determined that the net operating loss carryforward was more likely than not
to be used in the near future due to the future taxable income to be generated
by the Company's southern Texas facilities. The net loss before income taxes
for the six months ended March 31, 1996 increased the net operating loss
carryforward by $339,000 providing approximately $7.2 million of net operating
loss carryforward available through 2009. No benefit from deferred income taxes
was recognized for the six months ended March 31, 1995.
INCOME FROM CONTINUING OPERATIONS, NET OF INCOME TAXES. For the six months
ended March 31, 1996, the Company had income from continuing operations, net of
income taxes of $50,000, or $.01 per share, compared to $685,000, or $.20 per
share, for the six months ended March 31, 1995. The principal reasons for this
decrease were the higher cost of sales and selling and administrative expenses
in the 1996 period described above.
NET INCOME. For the six months ended March 31, 1996, the Company had net income
of $98,000, or $.01 per share, compared to net income of $907,000, or $.26 per
share, for the six months ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As the Company's business has grown, overall cash requirements for internal
growth and acquisitions have been met through a combination of private
placements of debt and equity securities, equipment and receivables financing
and cash flow from operations. Since commencement of its metals recycling
operations in May 1994, the Company has raised net cash proceeds of $6.3 million
through the sale of its equity securities. Through March 1995, the Company was
also funded in part by $887,000 of borrowings from First Dominion Holdings,
Inc., a company controlled by the Company's Chairman and Chief Executive Officer
("First Dominion"), all of which has been repaid. At March 31, 1996, the
Company had $7.3 million of debt outstanding, of which $4.8 million is due in
the next 12 months.
On May 11, 1994, the Company acquired its Nevada facility by purchasing all of
the outstanding common stock of Nevada Recycling, Inc. As restructured, the
purchase price for the Nevada facility consisted of debt of $5.0 million and the
issuance of 13,000 shares of the Company's Series A Convertible Preferred Stock
valued at $1.3 million. In addition, the Company issued to the sellers a
warrant to acquire 20,000 shares of Common Stock at an exercise price of $1.25
per share.
On June 30, 1995, the Company acquired a 20% interest in a Georgia metals
recycling facility through its investment in The Loef Company ("Loef"). This
investment has been valued at $277,000, the amount of costs incurred by the
Company in pursuing its acquisition of Loef. The Company's ownership interest
in Loef will be reduced to 15% if the Company does not invest an additional
$200,000 in Loef by June 30, 1996. At this time, the Company has not determined
whether to make this payment nor has it negotiated an extension of this
deadline.
-17-
<PAGE>
On December 11, 1995, the Company acquired its southern Texas facilities by
acquiring substantially all of the assets of Anglo Metals, Inc., d/b/a/ Anglo
Iron & Metal, for $6.1 million. The purchase price was paid as follows: (i)
$2.1 million in cash; (ii) $1.9 million note which is to be paid in ten
monthly installments of $186,500 beginning in February 1996; (iii) a $446,000
secured promissory note bearing interest at 8% and payable in 60 monthly
installments of $9,000; (iv) a $750,000 unsecured promissory note and
non-compete agreement payable in 72 consecutive installments of $10,416; and
(v) 227,693 shares of Common Stock, valued at $925,000.
On April 15, 1996, the Company acquired its Missouri facility by acquiring
substantially all of the assets of Mid-America Shredding, Inc., d/b/a/
Mid-America Shredding, for $1.9 million. The purchase consideration
consisted of cash of $660,000, assumed outstanding bank debt of $1.2 million
and a $55,000 note payable over eight months.
For the six months ended March 31, 1996, net cash used by operations was
$748,000. During this period the Company generated net income of $98,000 and
depreciation and amortization of $479,000, which were partially offset by
deferred income tax of $441,000 and an extraordinary gain of $48,000. Increases
in accounts receivable, inventory, prepaid expenses, and current assets amounted
to $1,643,000, offset by an increase in accounts payable and accrued liabilities
of $807,000. Inventories and accounts receivable increases were primarily
related to the acquisition of the Company's southern Texas facilities on
December 11, 1995.
For the six months ended March 31, 1996, the Company used net cash in investing
activities of $978,000 compared to $543,000 for the six months ended March 31,
1995. Such amounts primarily related to acquisition costs and goodwill as well
as additions of capital equipment.
The Company had a positive net worth of approximately $10.9 million at March 31,
1996, compared to $6.5 million at September 30, 1995, and $2.8 million at
September 30, 1994. This improvement in net worth is due to issuance of $2.3
million (net) of Common Stock during the quarter ended March 31, 1996, the
conversion of $1.1 million of bridge loan debt to equity, and the issuance of
$925,000 of Common Stock in connection with the acquisition of the southern
Texas facilities.
Working capital at March 31, 1996 was $105,000 as compared to $376,000 at
September 30, 1995. As of September 30, 1994, the Company has a working capital
deficit of $4.2 million. The improvements in working capital from fiscal 1994
to fiscal 1995 reflects the increase in cash provided by a full year in
operations of the Nevada facility, the restructuring of long-term debt and the
additional equity raised from the issuance of Common Stock during fiscal 1995.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's operations.
The Company believes it should be able to implement price increases sufficient
to offset most raw material cost increases resulting from inflation, although
there may be some delay between raw material cost increases and sales price
increases and competitive factors may require the Company to absorb at least a
portion of these cost increases. Management believes that a sustained ecomonic
slowdown would negatively impact the operations and financial performance of the
Company.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: July 12, 1996 By: /s/ Thomas J. Wiens
---------------------------------------
Thomas J. Wiens, President &
Chief Executive Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,240,000
<SECURITIES> 0
<RECEIVABLES> 2,159,000
<ALLOWANCES> (10,000)
<INVENTORY> 2,076,000
<CURRENT-ASSETS> 6,629,000
<PP&E> 8,790,000
<DEPRECIATION> (369,000)
<TOTAL-ASSETS> 19,938,000
<CURRENT-LIABILITIES> 6,524,000
<BONDS> 0
0
1,312,000
<COMMON> 10,000
<OTHER-SE> 9,571,000
<TOTAL-LIABILITY-AND-EQUITY> 19,938,000
<SALES> 7,277,000
<TOTAL-REVENUES> 7,305,000
<CGS> 5,937,000
<TOTAL-COSTS> 6,883,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149,000
<INCOME-PRETAX> 422,000
<INCOME-TAX> (4,000)
<INCOME-CONTINUING> 418,000
<DISCONTINUED> 0
<EXTRAORDINARY> 48,000
<CHANGES> 0
<NET-INCOME> 466,000
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
